Summit Midstream Corporation

Welcome to the Q3 2021 Summit Midstream Partners LP Earnings Conference Call. My name is Vanessa, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star, then 1 on your touchtone phone. Please note that this conference is being recorded. I will now turn the call over to your host, Mr. Ross Wong.

Thanks, Operator, and good morning, everyone. If you don't already have a copy of our earnings release that was issued earlier this morning, please visit our website at www.summitmidstream.com, where you'll find it on the homepage, events and presentations section, or quarterly results section. With me today to discuss our third quarter of 2021 financial and operating results is Heath Deneke, our President, Chief Executive Officer, and Chairman, Mark Stratton, our Chief Financial Officer, along with other members of our senior management team. Before we start, I'd like to remind you that our discussion today may contain forward-looking statements. These statements may include, but are not limited to, our estimates of future volumes, operating expenses, and capital expenditures. They may also include statements concerning anticipated cash flow, liquidity, business strategy, and other plans and objectives for future operations. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can provide no assurance that such expectations will prove to be correct. Please see our 2020 annual report on Form 10-K, which was filed with the SEC on March 4th, 2021, as well as our other SEC filings for a listing of factors that could cause actual results to differ materially from expected results. Please also note that on this call, we use the terms EBITDA, adjusted EBITDA, and distributable cash flow. These are non-GAAP financial measures, and we have provided reconciliation to the most directly comparable GAAP measures and our most recent earnings release. And with that, I'll turn the call over to Heath.

All right, great. Thank you, Ross, and good morning, everyone. So this morning, Summit reported third quarter financial and operating results of $61.1 million of adjusted EBITDA, which for the third consecutive quarter exceeded our internal expectations. We had 20 new wells connected during the quarter, which includes seven wells in the Barnett and six crude and white wells in the Willison. The seven Barnett wells are the first new wells that have been turned online on our system since 2019. And, look, the well results are really the best that we've seen in the play. We've experienced 30-day IPs in excess of 55 million a day of gas in the aggregate. During the quarter, we also continued to utilize free cash flow to delever the balance sheet and achieved another $37 million of debt pay down in the third quarter, which brings us up to $132 million of debt pay down year-to-date. That enabled us to end the quarter with total leverage ratio of just under 4.9 times EBITDA. So as we look forward to the fourth quarter, we expect to continue building momentum with approximately 45 new wells that are scheduled to turn in line by the end of the year. So given that our financial outperformance to date, together with a steadily improving outlook for the business overall, we now expect full-year 2021 adjusted EBITDA guidance to be, or EBITDA results to be near the high end of our previously announced guidance range of 225 to $240 million. Additionally, we expect our full year 2021 capital guidance to come in towards the low end of the range, which was $20 to $35 million of guidance range. Subsequent to quarter end, we've made significant progress advancing our two top priorities for the year, which included refinancing our billion dollars of debt that was maturing in 2022, as well as furthering the development of the EE pipeline. As noted in our earnings release, we've made significant progress on each of these and I'd like to spend some time and provide some additional details. So first, turning to the refinancing, on Tuesday we announced the closing of our new four and a half year $400 million ABL Revolver and a new $700 million second lien secured notes. The closing of these credit facilities really marks a turning point for Summit, and it's certainly a culmination of two years of effort to really transform the balance sheet and position for this refinancing. Since the end of 2019, we've employed a strategy centered around maximizing free cash flow and a prioritized debt repayment. With the new credit facilities, we further demonstrated this commitment to improving the balance sheet. We've structured the A-bill revolver and the second lien notes in a way that really enables us to allocate up to $300 million of excess free cash flow, which is effectively cash generated from operations less capital expenditures, that we can apply towards repaying our higher cost second lien debt. This structure reflects our commitment to focus on delivering the balance sheet by targeting absolute debt reduction as well as growing our underlying EBITDA, which are really the top priorities that we're going to be focusing on going forward. And together, we think this focus will enable us to continue unlocking value up and down the entire capital structure. The ABL Revolver is also more covenant light compared to our recently retired cash flow-based revolver. And it provides us with not only ample liquidity, but also additional flexibility to continue to execute on our balance sheet transformation while also providing an avenue to pursue value-added growth opportunities. With the net proceeds of the new credit facilities, we were able to extinguish the $725 million balance on the revolver, which was scheduled to mature in May of 2022, as well as the $234 million principal balance of the 2022 notes, which was scheduled to mature in August of 2022. So effectively, this holistic refinancing solution eliminates our near-term refinancing risk, It creates a three-and-a-half-year runway, if you will, until our next scheduled debt maturity and provides substantial covenant flexibility really to manage any kind of unexpected delays or downturn of development activities around our system. Turning now to EE, our other top priority, construction of EE continues to progress very well. We were able to achieve mechanical completion of the pipeline in October of 2021. And we expect to be able to place the project in service during the fourth quarter of this year and potentially as early as by the end of November. And now that we're nearing the end of construction, we are pleased to announce further reductions that we're able to achieve on the project budget, which is expected to be approximately $400 million in total which is roughly $280 million net to Summit for its 70% interest in the project. As a reminder, EE has a BCF a day under contract, or approximately 75% of its initial 1.35 BCF a day of total throughput capacity. These are committed commitments, long-term commitments, take-or-pay style commitments from some of the largest and most active producers in the Delaware Basin, including Exxon and Marathon Oil. Upon commissioning, EE will begin service under the first annual contract period at roughly $600 million a day of FT commitments, and those will step up throughout the first three years of service, such that by year four, EE will earn take-or-pay revenue on the full one BCF a day of contracts currently in hand. Furthermore, as activity levels and production in northern Delaware continue to build momentum with an improving commodity price outlook, We do expect to be able to fill the remaining $350 million a day of available firm capacity over the next several years. Upon initial service, we expect EE to – well, EE will be connected with five natural gas processing plants in the northern Delaware Basin. It is also interconnected with two of the largest and newest downstream pipelines originating in the Oahu region. which will provide EE's customer with very desired access to growing LNG export markets in the Gulf Coast region. Beginning in year four following startup and assuming that EE is fully subscribed at current market rates, we would expect EE to generate approximately $45 million of EBITDA, and that would be net to summit 70% interest in the assets. which on a net age basis represents really a bill multiple of around 6.25 times. Look, relative to trading multiples of other long-haul pipes of this like, we expect EE will contribute significant residual equity value to SMLP. Additionally, to the extent future demand exceeds the initial 1.35 BCF per day of capacity, The EE system has the ability to expand its capacity to approximately two BCF a day on a very cost-effective basis, simply just with the installation of midpoint compression. Of course, this would dramatically increase or improve the bill multiple as well if we were able to achieve that two BCF of subscription with the incremental cost associated with that expansion. And so, look, obviously we're very excited to be able to not only announce that we're weeks away from being able to put the pipeline in service, that we've made additional gains on the capital budget, reducing it by more than $100 million from the original FID, and just very excited about being able to commence operations. And we certainly look forward to the prospect of continuing to grow our customer base and our subscription levels in the coming years. as we continue to see the Northern Delaware Basin ramp up. So with that, I'd like to hand the call over to Mark, and he'll go through our detailed financial segment results.